North American News
Major US Stock Indices Surge: Fed Rate Cut Sparks Record Highs
Market Overview: Following the Federal Reserve’s rate cut, major US stock indices experienced significant gains, driven by robust foreign buying. The positive momentum carried through from overnight sessions in Asia and Europe, leading to record highs for both the S&P 500 and Dow industrial average.
Key Highlights:
- NASDAQ Leads the Charge: The NASDAQ index had its best day since August 8, soaring 2.87%. It now sits just 3.58% below its all-time high from July.
- Record Closes: The S&P 500 and Dow industrial average both closed at new record levels, marking their best performances since early August.
Closing Numbers:
- Dow Industrial Average: +522 points (+1.26%) at 42,025.19
- S&P 500: +95.38 points (+1.70%) at 5,713.64
- NASDAQ: +140.68 points (+2.51%) at 18,013.98
- Russell 2000: +46.36 points (+2.10%) at 252.70
Notable Winners:
- Tesla: +7.36%
- PayPal: +6.09%
- AMD: +5.70%
- Taiwan Semiconductor: +5.27%
- Salesforce: +5.32%
- Airbnb: +5.17%
- Caterpillar: +5.15%
- Citigroup: +5.24%
- Shopify: +4.63%
- Alibaba: +4.80%
Major Decliners:
- Rocket: -6.10%
- Trump Media: -5.71%
- Moderna: -2.63%
- Dollar Tree: -2.44%
- Merck: -1.30%
- Walmart: -1.27%
- Paramount: -1.18%
- Visa: -1.14%
- Papa John’s: -0.94%
Market Sentiment: The overall market sentiment is bullish, driven by renewed confidence following the Fed’s dovish monetary policy. Traders are optimistic about economic growth and corporate earnings, although caution remains due to potential market fluctuations.
US initial jobless claims 219K vs 230K estimate
- The weekly US initial jobless claims and continuing claims
- Prior week initial jobless claims 230K revised to 231K
- Prior week continuing claims 1.850M revised to 1.843M
- Initial jobless claims comes in strong and expected at 219K versus 230K estimate. Smallest sincethird week in May when it was at 216K
- The 4-week moving average was 227,5K a decrease of 3,500 from the previous week’s revised average. The previous week’s average was revised up by 250 from 230.75K to 231.0K
- Continuing claims 1.829M vs 1.854M estimat
- The 4-week moving average was 1,844,250, a decrease of 6,500 from the previous week’s revised average
US 30 year mortgage rates up 6 bps since Fed Rate cut to 6.17%
- But still down from highs over 7.8% in October 2023
The Federal Reserve cut rates by 50 basis points yesterday, but since then, the US 30 year mortgage rate has moved up six basis points to 6.17%.
September Philly Fed +1.7 vs -1.0 expected
- Philadelphia-area manufacturing data for September 2024
- Prior was -7.0
- New orders: -1.5 vs 14.6 prior
- Shipments: -14.3 vs 8.5 prior
- Unfilled orders: -6.7 vs 3.2 prior
- Delivery times: -0.7 vs 14.1 prior
- Inventories: 5.0 vs -4.8 prior
- Prices paid: 34.0 vs 24.0 prior
- Prices received: 24.6 vs 13.7 prior
- Employment: 10.7 vs -5.7 prior
- Average workweek: -13.6 vs -2.3 prior
US August existing home sales 3.86m vs 3.90m expected
- US July existing home sales data for August 2024
- Prior was 3.95m (revised to 3.96m)
- Sales -2.5% vs +1.3% prior
- Sales -4.2% vs -2.5% y/y prior
- Inventory 4.2 vs 4.0 months prior
- Median prices $416,700 vs $422,600 prior
- Prices +3.1% vs +4.2% y/y prior
US Q2 current account deficit -266.8B vs -260.0B expected
- The US second quarter current account data
- Prior was -237.6B (revised to -241.0B)
Fed still on track to cut rates by 125 bps in total for 2024 – Citi
- The firm maintains its forecast of 125 bps of rate cuts by the Fed this year
As such, they are maintaining their outlook for the Fed to cut by 50 bps in November before closing things out with a 25 bps cut in December. The latter is changed as Citi did previously expect the Fed to go by 25 bps yesterday before moving by 50 bps in November and December. But the total in terms of how much the Fed is cutting remains the same.
“Powell noted a number of times that today’s 50bp cut is a “commitment” to not get behind the curve which suggests the bar for further large rate reductions is very low. We continue to see risks as balanced toward a more rapid softening of labor market data and a more aggressive pace of rate cuts.”
US House fails to pass government funding bill – government shut down looming
- Lower House of the US Congress fails to pass the bill, Republicans voting against.
The bill was to fund the government for 6 months. Its failed. There are 12 days until the government shuts down.
Reuters:
- The Republican-controlled U.S. House of Representatives on Wednesday voted to defeat a stopgap government funding bill brought forward by Republican Speaker Mike Johnson, as some members of his own party opposed the measure.
- It was unclear what next steps Johnson will take to avoid a partial government shutdown beginning on October 1, when money for many federal agencies would be depleted.
ICYMI – US regulators to allow shares to trade in increments of half a penny
- U.S. Securities and Exchange Commission (SEC) green light to exchanges for half cent trading
The share market top regulator, the U.S. Securities and Exchange Commission (SEC),has voted to allow stock exchanges to price many shares in increments of half a cent, rather than the current minimum size of 1 cent.
- The move is aimed at promoting more competitive pricing and reducing investor costs.
- SEC Chair Gary Gensler said the new rules would promote transparency, fairness and efficiency
- “That goes to the heart of the SEC’s mission. The reforms are pro-investors. They are pro-capital formation”
Info comes via various media reports.
BOC’s Vincent outline’s the central bank’s data-gathering process
- What goes on behind closed doors
- Decision-making process starts a month before announcement with economic projections
- Governing Council uses consensus approach, not voting system like Fed or BoE
- Current focus on sticky inflation in services, including shelter costs
- Increased consideration given to risk of inflation falling below 2% target
- Emphasizes BOC’s commitment to bringing inflation back to target
Canadian consumer spending struggled in August – RBC tracker
- The latest consumer spending tracker from RBC
Data for August retail sales ex-autos, likely declined on a month-over-month basis both before and after adjusting for inflation. The tracker fell 0.1% and was flat excluding autos. That comes after declines of 0.4% and 0.3% respectively, in July.
Some highlights:
- Services sector spending declined, alongside spending on goods and essentials
- Home and renovation-related spending remained weak, alongside general merchandise, gasoline and health and personal care spending
- Travel spending slowed with average spend per transaction falling in a sharp drop
- Spending on hotels was largely flat as restaurant spending ticked lower
Brazil’s central bank has hiked its benchmark rate by 25bps to 10.75%
- Banco Central do Brasil Monetary Policy Committee (Copom) decision
Banco Central do Brasil Monetary Policy Committee (Copom) decision
- 25bp SELIC rate hike
- as expected
- BCB says the pace of future adjustments and overall adjustment magnitude will be guided by its commitment to reach the inflation rate target
- says the balance of risk for inflation is titled to the upside
Commodities
Gold Shines Post-Fed Rate Cut as Buyers Set Sights on $2,600
Market Overview: Gold prices surged following the Federal Reserve’s (Fed) decision to cut interest rates by 50 basis points, with the precious metal now trading at $2,589—up over 1%. The Fed’s dovish stance has rekindled bullish sentiment among investors, pushing gold closer to the psychologically significant $2,600 mark.
Key Drivers:
- Fed’s Dovish Shift: The Fed’s rate cut was accompanied by a commitment to maintaining labor market strength and cautious policy adjustments. Fed Chair Jerome Powell emphasized that inflation is moving sustainably toward the central bank’s 2% target, indicating no rush to normalize rates.
- US Economic Data: Recent jobs data reflects resilience in the labor market. Initial Jobless Claims for the week ending September 14 decreased from 231K to 219K, surpassing estimates. However, Existing Home Sales fell 2.5% month-over-month in August, marking the fourth consecutive decline this year.
- Impact on the Dollar: Despite rising US Treasury yields, the US Dollar Index (DXY) dipped 0.31% to 100.62, providing further support for gold. Typically, higher yields exert downward pressure on gold prices, but the market’s response to the Fed’s easing measures has outweighed this trend.
Outlook: As gold rallies in response to the Fed’s actions, market participants are eyeing the $2,600 threshold. The Fed’s projected interest rates and inflation forecasts, alongside a steady growth outlook for the US economy, suggest that gold may continue to attract buyers. With expectations for additional rate cuts later this year, gold’s appeal as a safe haven asset could strengthen further, making it a focal point for investors in the coming weeks.
Silver Surges Above $31 Following Fed’s Bold Rate Cut
Market Overview: Silver prices soared above $31.00 in response to the Federal Reserve’s significant decision to cut interest rates by 50 basis points, now set at 4.75%-5.00%. This rally marks a pivotal moment for the white metal, as it breaks through crucial resistance levels amid a weakening US Dollar.
Key Drivers:
- Fed’s Interest Rate Cut: The Fed’s decision signals a commitment to controlling inflation, which is projected to return to the target of 2%. This marks the first rate cut in over four years, creating a favorable environment for precious metals.
- Silver’s Rally: In Thursday’s European session, silver demonstrated impressive strength, climbing above the crucial $31.00 mark. The decline of the US Dollar contributed to this momentum, as traders reacted to the Fed’s dovish stance.
- Future Projections: Policymakers indicate that the federal funds rate may decline further to 4.4% by the end of the year, suggesting at least a 25 basis point cut is on the horizon. The CME FedWatch tool also reflects expectations of additional cuts, with forecasts indicating a total reduction of 75 basis points throughout the remaining monetary policy meetings in 2024.
Outlook: With silver breaking above $31.00, investor sentiment is bullish. The Fed’s proactive approach to managing inflation and the anticipated further rate cuts are expected to sustain demand for silver as a safe-haven asset. As market dynamics evolve, silver could continue to gain traction, particularly if economic uncertainties persist.
WTI Crude Oil Climbs To Two-Week High Amid USD Weakness
Market Overview: West Texas Intermediate (WTI) crude oil prices surged to over a two-week high, nearing the $71.00 mark, buoyed by fresh selling pressure on the US Dollar and the Federal Reserve’s significant rate cut. This upward momentum continues despite concerns about slowing global fuel demand.
Key Drivers:
- Fed’s Rate Cut: The Federal Reserve’s decision to reduce borrowing costs by 50 basis points has spurred optimism regarding increased economic activity and energy demand. This dovish shift has undermined the safe-haven appeal of the US Dollar, creating a supportive environment for oil prices.
- Geopolitical Tensions: Escalating tensions in the Middle East, particularly related to recent incidents involving Hezbollah, have further contributed to the bullish sentiment surrounding crude oil. Market participants are wary of potential disruptions in supply due to geopolitical uncertainties.
- Inventory Data: Government reports showed a larger-than-expected draw in US crude inventories, which typically supports prices. However, this was tempered by builds in distillates and gasoline stockpiles, suggesting mixed signals regarding overall supply dynamics.
Concerns:
- Global Demand Outlook: Despite the positive momentum, worries about slowing global demand, particularly in China, are likely to cap further gains. Both OPEC and the International Energy Agency (IEA) have recently downgraded their demand growth forecasts, reflecting persistent concerns over economic slowdowns.
Outlook: WTI crude oil’s ascent to the $71.00 level showcases a blend of supportive monetary policy and geopolitical factors. However, traders remain cautious as underlying concerns about global demand persist. The market will be closely monitoring economic indicators and geopolitical developments that could influence future price movements.
EU News
Eurozone July current account balance €39.6 billion vs €50.0 billion prior
- Latest data released by the ECB – 19 September 2024
Looking at the breakdown, surpluses were recorded for goods (€35 billion) and services (€19 billion). Meanwhile, deficits were recorded for secondary income (€13 billion) and primary income (€1 billion).
BOE leaves bank rate unchanged at 5.00%, as expected
- The BOE announces its September 2024 monetary policy decision
- Prior 5.00%
- Bank rate vote 8-0-1 vs 7-0-2 expected (only Dhingra dissented, wanting to cut by 25 bps)
- Need to be careful not to cut rates too fast or by too much
- Most MPC members think in the absence of material developments, a gradual approach to removing policy restraint would be warranted
- Labour market continued to loosen but that it remained tight by historical standards
- But data quality issues continued to be an area of concern i.e. LFS
- “Range of views” on inflation persistence among those who voted to keep rates unchanged
- Despite that, the current policy stance was judged to be appropriate
- Monetary policy will need to continue to remain restrictive for sufficiently long
- To monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting
Switzerland August trade balance CHF 4.56 billion vs CHF 4.89 billion prior
- Latest data released by the Federal Statistics Office – 19 September 2024
- Prior CHF 4.89 billion; revised to CHF 4.88 billion
The Swiss trade surplus narrowed in August with the breakdown seen below:
BOE’s Bailey: Optimisitic UK rates will fall further, need more evidence
- Comments after the BOE decision
- Need to see residual inflation pressures disappear
- Imperative that UK improves its current potential growth of 1.2-1.3%
Three takeaways from the BOE decision from Deustche Bank
- DB continues to see one more cut this year
DB highlighted three takeaways from the decision:
1)There was only one dissent in the 8-1 vote. They thought there would be two dissents.
“While we expected a more divided MPC, today’s decision highlighted a less divided Committee, with the vote tally coming in at 8-1.”
2) They thought the BOE might be more dovish.
“The MPC struck a more cautious tone than we expected. But the door remains wide open for a Q4 rate cut. Indeed, for the majority of the MPC, “a gradual approach to removing policy restraint would be warranted”.”
3) No changes to the balance sheet policy
Third, the Bank left its quantitative tightening (QT) envelope fixed at GBP 100bn. What does this signal? By maintaining a steady QT envelope, the MPC has implicitly signalled that the Bank puts more weight on the total stock of gilt reduction as opposed to the Bank’s active sales footprint. Total sales for the next 12m now will total GBP 13bn, lowering the impact on cash borrowing for the remainder of the current fiscal year and the next fiscal year (i.e. 2025/26).
With this, they continue to see just one more rate cut this year in opposition to market pricing showing 41 bps in easing this year. They see four further cuts in 2025. On both fronts, they highlight that risks are tilted to faster easing. At the same time, they see upside risks to their terminal view of 3.00% if cuts are front-loaded.
DB also highlighted some important points on the inflation view:
There were three important takeaways in the MPC’s discussion of inflation. First, inflation expectations continued to normalise as headline CPI remained two-tenths above the BoE’s 2% target. Second, services inflation continues to moderate, with the Bank’s measure of a seasonally-adjusted metric averaging around 4% in the three months to August (close to the average since the end of 2023). The stable reading was seen as a sign that “further pass-through from lower labour costs and easing inflation was still to come” – pointing to increased confidence in the inflation outlook. Third, Bank staff remained confident that services inflation would moderate further in Q4-24.
ECB’s Schnabel: Sticky services inflation is keeping headline inflation at elevated level
- ECB executive board member, Isabel Schnabel, with some remarks from a presentation
- Price pressures in the services sector are broad-based and global
- Pass-through of higher wages to producer prices is stronger in the services sector
- Momentum in services remains high and above levels consistent with price stability
- Medium-term inflation projections often clustered around 2% target
- Wage growth expected to slow down as past price shocks unwind
- Private sector forecasts suggest conditions for soft landing remain in place
- Signs that transmission of monetary policy tightening is weakening
Asia-Pacific-World News
PBOC sets USD/ CNY reference rate for today at 7.0983 (vs. estimate at 7.0924)
- PBOC CNY reference rate setting for the trading session ahead.
In open market operations:
- PBOC injects 524bn via 7-day RR, sets rate at 1.7%
- 161 bn yuan reverse repo expire today
- net 363 bn liquidity injected into the market
On Friday there is also the matter of the Loan Prime Rate setting from the People’s Bank of China.
These benchmark lending rates remained unchanged in August:
- one-year loan prime rate stayed at 3.35%
- the five-year rate was maintained at 3.85%
China has frozen the assets of 9 US firms in the country
- Organisations and individuals within China are prohibited from engaging in transactions with the firms
China took action against nine U.S. military-affiliated companies on Wednesday in response to U.S. arms sales to Taiwan, freezing their assets within China.
This move is the latest effort to increase pressure on the United States to cease its weapons sales to the island.
Organisations and individuals within China are prohibited from engaging in transactions with the firms.
Info via Reuters, there is a little more info at the link.
Hong Kong’s central bank follows the Fed, cuts base rate by 50bp to 5.25%
- The Hong Kong Monetary Authority is Hong Kong’s central bank.
Australian August unemployment rate 4.2% (vs. 4.2% expected)
- Employment report from Australia for August 2024
The latest from the Australian Bureau of Statistics for the Labour Force report, August 2024.
Employment +47.5k
- expected +25.0k, prior +58.2k
Unemployment Rate 4.2%
- expected 4.2%, prior 4.2%
Participation Rate 67.1%
- expected 67.1%, prior 67.1%
Full Time Employment -3.1k
- prior + 60.5k
Hours worked +0.4% m/m and +1.7% y/y.
New Zealand GDP data showed a contraction, not as bad as expected – recap
- GDP came in above the RBNZ’s forecast of -0.5% q/q
Via ANZ New Zealand, their take (in summary):
- The New Zealand economy contracted 0.2% q/q in Q2 on a seasonally adjusted basis … above the RBNZ’s forecast of -0.5% q/q.
- Despite an upward surprise for the RBNZ, overall economic momentum remains very weak, consistent with ongoing disinflation and gradual OCR cuts.
- Overall, we don’t see these data as a game changer for the monetary policy outlook. We continue to expect the RBNZ to deliver 25bp cuts at each meeting, allowing time to assess the economy’s responsiveness to easing.
- Financial markets had been attributing more than 50% odds of a 50bp cut by the RBNZ as soon as October. We’ve always felt the market was getting ahead of itself, and today’s better-than-feared outturn vs the RBNZ’s forecastshould pour some cold water on the idea of outsized cuts (at least in the near term).
New Zealand remains in a prolonged recession. RBNZ needs to get cash rate below 4%
- The RBNZ cut 25bp in August to 5.25%
This now via analysts at KiwiBank
In brief:
- New Zealand remains in a prolonged recession.
- Forward-looking indicators suggest that the September quarter will record another contraction.
- That makes the recession two years old.
- Policy settings are restrictive, but more interest rate cuts are coming. High interest rates have hurt, and the economy demands more easing.
More specifically for the RBNZ:
- the RBNZ are responding – late, but in earnest
- A rate cut in October is as close to a done deal as you get. In fact, we’d argue the only discussion should be on delivering 25 or 50. We’d advocate 50. And again, 50 in November.
- The RBNZ’s first 25bp cut in August marked the start of a move towards 2.5-to-3%. That’s at least 250-to-300bps.
- We argue the RBNZ needs to get the cash rate below 4%, asap. It takes up to 18 months for rate cuts to filter through the economy.
- Get moving…
New Zealand Q2 GDP
- New Zealand economic growth contraction
New Zealand GDP (QoQ) (Q2)
- Actual: -0.2%
- Expected: -0.4%
- Previous: 0.1%
New Zealand GDP (YoY) (Q2)
- Actual: -0.5%
- Expected: -0.5%
- Previous: 0.5%
New Zealand’s economy contracted in Q2
- retail trade and accommodation, agriculture, forestry, and fishing and wholesale trade slowed
The Reserve Bank of New Zealand had forecast the economy contracted by 0.5%.
South African central bank lowers rates for the first time since 2020
- Repo rate cut to 8.00% from 8.25%
- Rates cut to 8.00% from 8.25%
- Decision was unanimous
- 2025 CPI seen at 4.1% vs 4.4% prior
- Kganyago says hold, 25 and 50 bps were on the table
The global disinflationary wave is ongoing. Eight per cent is still a tough pill to swallow but rates should come down.
“In the near term, we continue to see a dip in headline inflation, supported by the stronger exchange rate and lower oil prices. The implied starting point of the rand is R18.04 to the US dollar, an appreciation of nearly 2% relative to our July assumption. This contributes to fuel price deflation, which helps keep headline inflation below 4% through the first half of next year.”
Big day coming up in Asia on Friday – Japan CPI & BOJ meeting
August National CPI data from Japan is due on Friday.
South Korean Finance Minister says ready to deploy “contingency plans” if needed
South Korea’s finance minister Choi Sang-mok
- said the government will closely coordinate with the central bank and regulators to deploy contingency plans for financial markets if needed as external uncertainties persist after the Fed lowered interest rates
- also said he expects South Korea’s household debt growth to gradually ease
- but stands ready to swiftly announce additional measures should borrowing pick up faster than expected
Cryptocurrency News
Bitcoin Eyes $65,000 as Rate Cuts and On-Chain Metrics Boost Sentiment
Market Overview: Bitcoin (BTC) is trading above $62,000, recovering from recent fluctuations and fueled by the Federal Reserve’s dovish decision to cut interest rates by 50 basis points. The cryptocurrency is showing strong signs of momentum as institutional sentiment shifts.
Key Drivers:
- Federal Reserve Rate Cut: Following the Fed’s decision to reduce interest rates, Bitcoin rose 2.4% to close above $61,700. The current interest rate stands at 4.75%-5.00%, with historical trends indicating that lower rates have previously sparked significant rallies in Bitcoin’s price.
- On-Chain Metrics: Ki Young Ju, founder of CryptoQuant, shared insights suggesting that institutions are no longer aggressively shorting Bitcoin. This shift in institutional sentiment, combined with positive on-chain metrics, indicates growing confidence in BTC’s price trajectory.
- Historical Context: The Lookonchain chart illustrates Bitcoin’s reaction to past Fed rate cuts, notably during the COVID crisis when aggressive rate reductions propelled BTC from around $5,000 to $60,000. While the upcoming rate cut may not yield as dramatic an effect, it is expected to support a bullish sentiment in the market.
- Government Adoption: Louisiana State Treasurer John Fleming announced that the state will now accept Bitcoin, Bitcoin Lightning, and USD Coin for government services. This move reflects a growing acceptance of cryptocurrencies in mainstream finance and could further enhance Bitcoin’s legitimacy and adoption.
Outlook: With current trends and institutional sentiment leaning towards positivity, Bitcoin is aiming for a target of $65,000. The combination of favorable interest rate conditions and increasing acceptance in governmental frameworks may create a conducive environment for further price appreciation. Market participants will be closely monitoring both economic indicators and on-chain data as BTC continues its upward journey.
XRP Targets $0.60 Amid Ripple’s Stablecoin Plans and Grayscale Trust Growth
Market Overview: XRP is currently trading at $0.5879, inching closer to the crucial psychological level of $0.60. The altcoin’s upward momentum is driven by Ripple’s forthcoming stablecoin launch and increasing institutional interest, as reflected in the Grayscale XRP Trust’s rising Net Asset Value (NAV).
Key Drivers:
- Ripple USD (RUSD) Stablecoin: Ripple is preparing to launch its stablecoin, aiming to facilitate cross-border payments through both the XRP Ledger (XRPL) and Ethereum mainnet. This initiative is expected to enhance Ripple’s integration with global financial institutions.
- Grayscale XRP Trust: The NAV of Grayscale XRP Trust has climbed to $11.49, signaling a growing institutional demand for XRP. This increase in NAV suggests that investors are optimistic about the fund’s future performance, even though it does not directly impact XRP’s market price.
- Regulatory Landscape: Although the SEC has maintained a tough stance on crypto regulation, recent comments from SEC officials indicate that cryptocurrency is not inherently incompatible with existing securities laws, potentially paving the way for clearer guidelines.
Market Action: XRP has gained 2.3% since the start of the week, reflecting the positive sentiment surrounding these developments. As investors await a launch date for the RUSD stablecoin and further regulatory clarity, XRP’s price could see additional upward movement.
Summary: XRP is positioned for potential gains as it approaches the $0.60 mark, bolstered by Ripple’s stablecoin initiatives and a positive trajectory in Grayscale’s XRP Trust NAV. Market participants remain focused on regulatory updates and the implications of Ripple’s stablecoin for the broader cryptocurrency ecosystem.
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